Another View of Muni Bonds

Municipal bonds have been remarkably weak performers since August 2010. Over the past two days I’ve initiated a position in the ETF iShares S&P National AMT-Free Muni Bond Fund (MUB) in my discretionary account.

Without delving into the qualifications or experience of these two with regard to municipal credit (none), I instead offer some sensible analysis of the muni bond market. The muni bond market breaks down into two very distinct types of credits. Some bonds are at risk in tough times; others really are not. The categorical tarnishing of all muni credits, as on the recent 60 Minutes segment, is stunningly bad commentary.

Again, we agree that some state and local governments face severe budget problems. Perhaps these budget problems are intractable and will only be solved via a debt restructuring. The solution for a bondholder? Stay out of the middle of that fight. Own state-issued general obligation debt, and local government debt that is payable from a dedicated revenue stream that cannot be directed to other purposes.

Disclaimer: It is very difficult to outperform a buy and hold strategy. Many investors have found themselves best served over long time horizons by investing regularly in a diversified portfolio of stocks or low cost, broadly diversified indexed stock funds. Information presented is based on analysis of past data and assessments by the Tactical Timing System model. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. Although accuracy is strived for, no guarantee is made regarding the accuracy of data presented. Nothing presented here should be considered investment advice, but merely the humble opinion of the author.